Saturday, 6 August 2011

The long downward grade

In the midst of the market panic last week, the Bank of New York Mellon began to charge large clients a fee for parking cash. That is, a bank, which in a normal world pays for the privilege of acquiring deposits, is now charging the depositor for the privilege of keeping his cash safe because there is so much wealth sloshing around the system with no reliable harbor.

What better metaphor for the latest example of free-market capitalism’s failure at what it claims to do best—efficiently allocate resources? The unbridled worship of free markets, which was supposed to distribute capital efficiently if the Titans of Industry could just be unshackled from the interference of gummint, has now resulted in the accumulation of vast stores of money that have no use while equally vast sectors of actual people have no money. Next, we’ll have a replay of those Depression-era tales of farmers dumping their oranges into the ocean while soup kitchens were running out of food. Meanwhile, the Tea Bagger faction will be begging the hedge-fund manager Creosotes to have just a bit more tax-free dessert on us—just a tiny slice, ‘It’s wafer-thin’.

Blame for the current debacle can be apportioned widely and in a most fair and balanced way. As the Cassandra of finance, Yves Smith, says at her essential blog, Naked Capitalism, the roots of the recurring financial roller coaster go back to the failed strategy of the incoming Obama team:

‘All the authorities did was patch up a predatory banking system with duct tape and bailing wire and hoped enough cheerleading would restore confidence. And after the banks got their bailout money, the mood seemed to be, “We spent so much on them, we don’t have anything left for anyone else”. The alarming rise in government deficits, which was primarily the result of the crisis and not discretionary spending, has led to a deadly combination of austerian policies . . ., dysfunctional government responses, faltering recoveries and deliberate shredding of social contracts. It’s like watching a house burn and then having people throw Molotov cocktails at it’.

Yes, yes, of course the bad old Republicans were guilty of setting the stage for this, and the Teabagger faction is a dangerous passel of bug-eyed millenarians eager for Jaisus to ride in on a heavenly chariot. But Obama is going to take the bulk of the blame for getting us here, and he bears it. It was Mr O who brought in the Clinton-era architects of deregulation to make sure the mega-banks and their corrupt owners felt no pain; Obama who refused to heed the dissidents who said his stimulus package was too small and weak to jump-start the economy; Obama who included no direct job-creating measures in his first 100 days despite enjoying a giant congressional majority.

Maybe he would have been blocked. Maybe the Blue Dogs and the GOP would have stymied every attempt to take these radical steps. We’ll never know since Obama never made the attempt. Instead, he begged for consensus, empowered the saboteurs and cheapened his office instead of using it to do battle. He played footsie with Fox, brushed off the racist South Carolina congressman who shouted him down, refused any hardball and mocked the people who worked to elect him. His inconsistent and occasional rhetorical jabs at Wall Street’s stingy billionaires merely incensed them since they took him for a paper tiger that wouldn’t dream of showing them any real teeth.

And for all Obama’s pandering to the interests of the ruling elite, his reward is further disdain. Standard & Poor’s downgrade of U.S. debt is the finance sector’s collective act of flicking him off their shoulder like a bothersome gnat. This rating agency, the same one that so distinguished itself during the housing bubble by declaring worthless mortgage bonds to be triple-A quality because it was paid off by its clients to do so, now openly defies the executive authority on explicitly political terms and pretends to dictate policy from its unelected perch in lower Manhattan. The same rating groups that refused to notice the Bush tax cuts and their devastating impact on the nation’s accounts now dare to declare us unable to maintain the safety net that they and their friends sytematically shredded.

These financiers are like the ancient ruling families of a Latin American dictatorship who react with apoplectic rage when upstart newcomers throw a fancy party and dare to invite them. But they are only being who they are—a truly wise man would know that to win their favor requires causing them pain in the time-honored S&M tradition of the decadent aristocracy. Obama tries to coax them into partnership and instead only reaps their contempt.

Our democratic system missed a world-historic opportunity in 2008-09 when the zombie banks tottered on the edge. We only required a bold leader to use his (or her) enormous but temporary power to push out the corrupt leadership, declare the bank shares worthless, give bondholders new equity stakes with the infusion of system-saving government cash that had to come anyway and say, Welcome to a new era of finance re-subordinated to the needs of the productive economy. What a world we would be living in if those Goldman Sachs and BOFA execs suddenly found their life savings had gone up in smoke like those of the millions of people whose lives they ruined? How cautious hedge fund managers and bank presidents would be today, willing and even eager for careful federal regulations to keep their industry from experiencing such a traumatic episode ever again?

The future is not bright. But the reconstruction of popular resistance to the reign of this new finance mafia can only begin when the illusions that have brought us to this pass are ripped apart. For my part, I am eager to see an end to the facile demonization of the reactionary forces while the complicity of the Democratic Party and its principal figure is ignored. The coming recession, if such there be, is Obama’s very own, to have and to hold. He is the architect of this debacle, and it’s time to stop making excuses for him.